WHAT’S THE STORY?

IT was 20 years ago today that the European Central Bank came into being. You will probably not have noticed any celebrations of that fact here in Britain, even though the UK has been involved before, and since its inauguration on June 1, 1998.

That’s because the European Central Bank’s (ECB’s) main task is to ensure stability within the Eurozone, and of course Britain has never joined the Euro, and with Brexit it never will.

Funnily enough – and Better Together supporters never tell you this because Scotland could get the same deal on joining the EU as an independent country – eight other countries are members of the European Union and are not in the Euro. In strictly alphabetical order they are Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania and Sweden, though only ourselves and Denmark have a permanent opt-out. Just as the other eight do, so the UK makes a substantial annual contribution to the operational costs of the ECB in order that Britain can be part of the European System of Central Banks. We have no say on ECB policies despite making that payment, and also cannot get any share of the ECB’s profits.

After Brexit, whether we will still be in that Central Bank system, which is absolutely vital for trade and especially financial services, is still apparently being discussed.

THE ARROGANCE OF BRITAIN

WHEN the ECB was set up, Tony Blair’s Labour Government demanded a seat on the executive board of the bank which is based in Frankfurt in Germany. The other countries pointed out quite reasonably that such a demand was nonsense because Britain wasn’t in the Eurozone. And they wonder why so many people in the EU bureaucracy think the UK is arrogant…

Before the ECB got going, Chancellor Gordon Brown trumpeted that he had won a major concession that the Queen’s head could go on the Euro coin – some victory, because the ECB duly decreed that Her Majesty couldn’t have her face on Euro notes. It’s all academic now, of course, because we have never had Euro coins or notes, but it caused a fair old row 20 years ago.

ECB POWERS?

THE ECB is in charge of the Euro, the world’s second most traded currency and an integral part of life for 340 million citizens in 19 countries. Supported by the central banks of the European Union, the ECB has billions in capital to use when necessary to stabilise the Euro. The bank also supervises all those banks which trade in Europe and has come down increasingly hard on banks which do not meet its rules and regulations.

The ECB sets monetary policy for the Eurozone while the non-Euro countries, including the UK, must take ECB and Euro activity into account when setting their own monetary policy. The Bank sets interest rates for the Eurozone, lends financial assistance through the European stability mechanism and in general works to make sure that the 19 countries have stable interest and exchange rates, stable levels of public debt, and above all have stable inflation – seen by many as the ECB’s biggest and most successful task. When countries like Greece and Italy have had financial crises, the ECB has been tough on them, but to blame the bank solely for austerity measures in those and other countries ignores the good it does.

WHAT DOES BREXIT MEAN FOR THE ECB AND US?

AFTER Brexit, which increasingly looks like a hard one without a trade deal, the UK presumably will have to leave the ECB altogether. You would have thought the Brexiteers would be trumpeting this fact, as it saves us money, but their friends in the City have stomped all over them to keep quiet, because the ECB will be instrumental in deciding the British banks’ future in Europe and as Greece and Italy learned, the ECB can definitely play hardball when it wants to.

Almost as soon as the votes were counted, the ECB blamed Brexit for problems in the Eurozone, and in recent months the bank has insisted that any bank based in Britain that wants to trade in Europe must have a genuine base – as opposed to a ‘brass plate’ exercise – within the Eurozone so that the ECB can carry out its work on risk management. It’s yet another complication of Brexit.